Weekend Strategy Review February 21, 2016

Posted by OMS  at February 21st, 2016

The Dow fell 21points on Friday, closing at 16,392.  It was up 418 points for the week.  The NASDAQ was up 17 points on Friday and up 167 points for the week.

Friday’s pullback in the Dow appeared to be a small corrective wave within wave ‘c’ up of Major Wave 2 up.  Once this corrective wave completes, the Dow should start its final rally to the 16,700 –17,000 level.

Last night the Dean’s List turned positive.  All four of the positive index ETFs are now on the List.  So now, with a positive Tide and a positive Dean’s List, traders should favor the long side of the market for the short term.  However because I believe that the current rally is the final wave of Major Wave 2 up, I’m not going to get very aggressive with my purchases.  I’d rather wait for Major Wave 2 up to complete and then look to trade the impulse wave (Major Wave 3) down.

Trading Wave 2s is always an iffy proposition.  Like I’ve said many times before, they seem to have a mind of their own.  Also because the first wave of the sequence within Major Wave 2 up was a simple straight up move, it’s likely that there will be a lot of volatility during final wave ‘c’ up.  The other thing that precludes me from becoming too aggressive is the possibility that Wave 2 up could truncate.  It does NOT have to get to the 16,700 level.  This is one of the reasons that I am only scalp trading now.

I’m trading smaller positions, taking profits quickly, and getting out of the market at the end of the day.  Scalping allows me to sleep better at night.  I don’t have to worry about what the market will do in the overnight session.  And if the market happens to open lower, it presents me with many opportunities for scalping.

This is what I was doing on Friday with GPOR, EQT and SLB.  All produced nice scalp trading profits.   

With DIG, the positive ETF for energy now on the Dean’s List, I’m looking for opportunities to enter trades in energy stocks whenever they become oversold.  

Energy stocks like GPOR and EQT appear to be in the process of developing nice Hockey Stick patterns on both the Daily and Weekly charts. And as I mentioned before, they also have strong Money Flow indicators and Bollinger Bands that continue to narrow.

Here’s the key:  As long as these stocks continue to form their ‘Blades’, I will kiss them good-by at the end of the trading day.  However, IF they happen to start breaking out from their ’Blades’ while I’m trading them, I will sell 50 percent of my position at the close and then hold the rest for a possible larger move up.

With the favorable March- April time period for energy fast approaching, I want to have some money invested in energy stocks overnight.  But I need to see them break out from their ‘Blades’ before I do this.

Same for gold.  Right now I’m on a sideways signal for gold and mining stocks.  I believe the recent run up in gold was wave 1 of a major move that is just starting for gold.  Now I’m waiting for a pullback. 

If you’ve been watching gold for the past few weeks, you probably noticed that on most days when the Dow rallied, gold fell.  So if the Dow rallies toward 16,700+ in the week(s) ahead, it’s likely that gold and mining stocks will pull back to their moving averages.  This pullback will form the ‘Blade’ of a Hockey Stick pattern and set the stage for the next major advance.  This is where I want to start accumulating gold.  Not now.

There’s a time to hold stocks and a time to trade them.  Right now, with most energy stocks just starting to move off the bottom of TLB patterns, I’m still scalping.  I’m also being extremely selective now and only scalping socks with clearly defined ‘Blades’.

With the final rally wave of Major Wave 2 up about to start, I MUST see a pattern now for me to hold any stock overnight.  Even with energy stocks.  No pattern, no trade.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

02-22-2016

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